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Indicators that are both leading and trailing

WikiBit 2022-04-15 01:37

Abstract:As you begin to be familiar with the world of cryptocurrency trading, you may feel overwhelmed by the amount of information and terminologies.

  •   What are the differences between leading and trailing indicators?

  •   Within crypto transactional data,

  •   common examples of each indicator

  •   Data Indicators from the Crypto Economy as a Whole

  As you begin to be familiar with the world of cryptocurrency trading, you may feel overwhelmed by the amount of information and terminologies.

  WikiBit's how to trade cryptocurrencies has created a difference between Trading and Investing, based on whether the focus is short or long term, the different types of analysis used for each - Technical or Fundamental - and the level of commitment required.

  Because you're focusing on short-term trends and the continual flux of pricing, technical analysis takes a lot more time.

  We haven't even started to scrape the surface of the indications and tools that you could use.

  Rather than providing an overwhelming A-Z of every potential technical indication, it is more beneficial to understand how indicators can be classified, which can then help you select a certain aspect of Technical or Fundamental Analysis with which you have an affinity.

  Technical indicators used in traditional financial asset trading, such as stocks and foreign exchange, are categories as Leading, Lagging, or Macro.

  •   A Leading Indicator predicts where the price will go in the future.

  •   Once pricing patterns have evolved, a Lagging Indicator confirms them.

  You would believe that if you had a choice, you'd rather look at where prices are going rather than where they have been, but both Leading and Lagging are equally useful.

  Indicators that are commonly used as leading and lagging indicators

  We've already given one example of each indicator kind.

  The Relative Strength Index (RSI) is a leading indicator since it predicts when a market is about to become overbought or oversold.

  Moving averages, on the other hand, are based on historical data and provide a continuously updating perspective of average price behavior.

  Keeping the Volume in Check

  In a previous essay about volume in general, we discussed On Balance Volume. Given how closely price and volume are related, OBV can provide a potential indication of price direction by indexing volume movements.

  Bollinger Bands are a type of band that is used to describe

  Bollinger Bands are a measure of volatility that may be used as both a leading and lagging indicator, and are named after their founder, John Bollinger.

  Bollinger Bands are represented by three lines on a graph. The middle line is usually a Simple Moving Average (we already discussed Moving Averages) set to 20 days/weeks. The moving average is two standard deviations above and below the top and bottom lines, respectively.

  Bollinger Bands, on the other hand, are used to display the extremes of prospective volatility. Markets are steady when the bands are close together; the difficulty is to recognize the indicators that volatility is on the way, and in which direction.

  As volatility rises, the bands will widen to reflect the wider potential range of change.

  When Bollinger Bands are wide apart, on the other hand, it's critical to try to anticipate them squeezing closer together as volatility declines.

  Bollinger Bands are commonly referred to as mean reversion indicators due to their use of a Moving Average and standard deviation.

  Crypto Indicators of Specific Data

  One of the most difficult aspects of entering into trading is the length of time it takes to learn the skills and develop a viable plan. Technical Analysis is not especially intuitive, and some people dispute that it even works.

  Fortunately, there are a variety of less abstract, more intuitive, and cryptocurrency-specific sources of information that can work as indications for both short and long-term price movement.

  Data from Transactions

  If you're thinking about investing in your neighborhood coffee shop, one of the first things you'll want to examine is revenue. Total revenue is important, but so are daily revenue patterns, relative growth rates week-to-week, and the sorts of coffee sold so you can develop basic customer profiles.

  By pulling transactional data yourself - by hosting a node - or depending on current services or analysts, you can analyze bitcoins in a similar way. To take Bitcoin as an example, there is a plethora of data that can be used as leading indicators:

  Mining Data

  Miners are the backbone of the Bitcoin network, and their work ensures transaction integrity by performing the hashing algorithm.

  Because hashrate is used to assess mining, the higher the hashrate, the more powerful Bitcoin is and the better it performs as a store of value.

  This hypothesis is supported by a graph of Hash Rate over time, however it isn't extremely granular.

  •   You can see if this critical function is getting concentrated by looking at things like Mining Distribution.

  •   The amount of revenue generated by mining and how it moves will reveal whether it is kept or sold to fund operations.

  •   Transaction fees might assist you figure out what kind of users you have and how that relates to adoption.

  Similarly, you can identify interesting potential indications by looking at the following data groups:

  Activity in the Network

  Number of Addresses, Number of Transactions, Transactions Processed per Second, UTXOs (balances), and Average Transaction Value Wallets/Exchange

  Accounts are all examples of client data.

  Data on the number of wallet downloads is available from wallet providers such as Blockchain.com. This is a very rudimentary indicator because it does not imply that the person has money. Big exchanges, like Coinbase, reveal data on customer growth, and because it will soon be a publicly traded corporation, it will be required to do so. Its most recent file revealed a wealth of information.

  Scarcity

  The scarcity of Bitcoin is its most crucial feature.

  It is designed with the rules that govern its operation and runs like a clock, producing 6.25 BTC every 10 minutes or so (a rate that halves every four years). Stock-to-Flow, a model that charts the relationship between predictable scarcity and pricing, has emerged.

  Stock-to-flow is a conventional indicator of the scarcity of precious metals like gold that was invented in 2019 by an anonymous analyst named PlanB. It employs a simple formula based on the link between current and new stocks:

  1/supply growth rate Equals stock-to-flow

  Because gold is indestructible and extraction is rigid, its supply is predictable. The average temperature in San Francisco is around 62 degrees. The SF of Bitcoin is always increasing since the supply growth rate is constantly decreasing and headed to zero, as the last Bitcoin was issued in 2140.

  Ecosystem data that is more diverse

  Cryptocurrencies don't have standard measures like PE Ratios, but there are a growing number of bespoke metrics that can indicate network health, growth, and hodling. They're available for free on sites like Blockchain.com, Glass Node, and Woo Bull Charts.

  Market Value vs Realised Value (MVRV) is a good example, as it compares the Market Value of bitcoin to the price at which it last moved. This is one of the proxies for determining how much money customers have stashed away.

  Similarly, figures tracking the percentage of balances that haven't moved in the last 12 months might assist measure hodling and prospective selling pressure.

  Similarly, metrics like as the rise of Whale Accounts and Institutional Investment, as well as trends in the movement of coins into or out of exchanges, which operate as pro or contra-indicators of hodling, are also significant indicators.

  Macroeconomic Indicators

  Are a set of indicators that measure the state of the economy

  Cryptocurrency is frequently depicted as a threat to traditional finance. Because Bitcoin is being used as a store of value, it should have an inverse connection with key indicators of the health of the system it is designed to replace. For example, the term'safe haven' asset is frequently used.

  The truth is that the association has yet to be convincingly demonstrated, but there are a few factors to keep an eye on:

  The Dollar Index is a measure of the value of the dollar (DXY)

  The DXY is a currency index that compares the US Dollar against a basket of other foreign currencies. A drop in the DXY indicates dollar weakness, while a gain indicates the reverse. The DXY and Bitcoin have a strong negative relationship, as a weakening dollar signals a flight from the world's reserve currency to safer assets.

  Stock Exchanges

  Despite the fact that BTC moves in the opposite direction of the dollar, it has yet to decouple from stock markets, which have benefited from continual stimulus since the financial crisis of 2008.

  This appears to contradict Bitcoin's value argument, but it implies that both are benefiting from the same type of investment behavior - the search for income in a low yield environment. To put it another way, anything that provides a higher rate of return on savings than the current record low.

  This means that crypto investors will applaud both the dollar's demise and the stock market's “numbers go up” mindset.

  Signs that Bitcoin's relationship with the stock markets is changing are crucial because, as things stand, a very rudimentary analysis shows that the US Treasury and Federal Reserve's levers are also linked to Bitcoin pricing.

  Yields on Bonds

  Bond Yields are another major macro signal that crypto traders keep an eye on. Bonds are tradable financial instruments that are often used by governments to raise funds. A coupon or return is always included in a bond, as well as a maturity date.

  Otherwise, the Bond would give a negative real return if the coupon rewarded the holder more than predicted inflation.

  As a result, coupon rates rise as maturity lengthens, reflecting the increased risk of future inflation.

  As a result, rising bond yields are a leading indicator of inflation, and Bitcoin, with its store of value features, should fare well in an inflationary environment. The partnership, on the other hand, isn't so straightforward. If inflation is expected, the need for the type of stimulus that has been significantly linked to price increases in crypto markets may be reduced.

  Though the leading and lagging indicators we discussed play out in the short term, as the lens zooms out from the specifics of price and volume, the line between Technical Analysis and Fundamental Analysis blurs, and we stray into what we'll look at in the next article, Fundamental Analysis, which examines broader measures of adoption and influence on price.

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